Are There Risks With Digital Transformation?
An Overview Of Risks With Digital Transformation
Digital transformation (DTx) is a powerful tool for businesses, but it comes with inherent risks.
According estimates from larger consultants, over 70% of Digital Transformation initiatives fail. Our own leadership team has been involved in implementing solutions to evolve past some of those failed initiatives. In addition, we've reviewed substantial literature on case reports of failed initiatives.
Fortunately, most failures are preventable and had predictable and mitigatable issues that could have been dealt with at many moments throughout the failure. Therefore, it's vital we learn of the common risks, know how to spot them, why they emerge, and how to mitigate them.
We divide them into two main risk groups: strategic structure and operational.
DTx Structures Have Their Own Advantages & Disadvantages
In-house vs. Outsourced DTx Teams: A Summary
Building a successful DTx team requires careful consideration of your approach, with both in-house and outsourced options presenting advantages and disadvantages.
In-House Teams
Potentially deeper understanding of your company's specific needs.
Greater control over the team and project direction.
Difficulty finding and retaining highly skilled DTx professionals.
Higher costs due to salaries, benefits, and training.
Significantly slower team ramp-up time.
Outsourced Teams Have Several High-Risk Types
While contractors can start initiatives with more pre-trained resources for a quick, effective start, it's important to recognize that many ineffective and costly strategies have started this way, too.
High-performance DTx providers, like Optimai, avoid the obvious pitfalls so many in our industry have fallen into:
Large, Bulky System Providers
Offer extensive systems but often come with high costs, long contracts, and outdated technology.
May not be a good fit for businesses seeking agility and customization.
Hyper-Specialized
DTx Providers
Deep expertise in a specific or niche DTx service area.
May not provide a holistic approach or optimize solutions for broader business needs.
Standardizers: Generalists w/ Cookie-Cutter Approach
Often lack the depth of expertise required for complex DTx projects.
Can lead to poorly designed solutions with negative ROI.
This is why we recommend a hybridized approach, combining in-house talent with external specialists. It offers the most flexibility and cost-effectiveness for businesses.
DTx Operational Risks
The following is a list of the most common underlying causes for having transformation issues:
Strategic misalignment: DTx strategy must align with business goals to ensure implemented solutions deliver measurable benefits.
Inadequate planning: A well-defined plan with clear goals, timelines, and resource allocation is crucial for success.
Underestimating operational complexity: DTx involves complex systems and processes. Failing to account for this complexity can lead to implementation challenges.
Incomplete change management: Effective change management is essential for ensuring employee adoption of new technologies and processes.
Unfamiliarity with systems and technology: DTx providers need a deep understanding of relevant systems and technologies to effectively implement solutions.
Lack of compliance and security: DTx initiatives must comply with relevant regulations and security best practices.
Technical debt: Unmanaged technical debt can hinder progress and increase costs.
Inaccurate risk assessment: A comprehensive risk assessment is critical for identifying and mitigating potential risks.
Confusing DTx with IT: DTx has a broader focus than IT, encompassing business operations and strategic objectives.
In understanding these challenges, businesses can approach DTx strategically to achieve sustainable growth.
For a more detailed discussion of DTx risks and mitigation strategies, please refer to: Business DTx Risks & Challenges - Plus Tips To Manage Them.
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